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Lafarge, Holcim merger stirring up cement industry

The $50-billion merger of Holcim and Lafarge SA and the election of a new government in Quebec may have an impact on a new $1-billion cement plant in Gaspe, Que.

Holcim and Lafarge are still working out the details of their marriage to create the world’s largest cement maker and supplier of crushed stone, sand and gravel.

However, at the time of the merger’s announcement, the companies said they would divest up to 15 per cent of their combined earnings before taxes and depreciation, with the expectation of realizing about $1 billion.

Between the two companies they have about 9,000 workers and control half the market in Canada, mostly in Ontario and Quebec — the two largest centres of cement production and usage in Canada.

All of this is creating interest in Quebec and the rest of Canada’s cement industry, which suspects a combined Holcim Lafarge will eliminate overlap and sharpen competition in a sector still struggling to recover from the 2008 recession.

Statistics Canada reports that industry production has declined since 2005. However, since then, it has steadily grown.

There are some 16 plants in five provinces, the majority in Quebec and Ontario.

“The four Quebec plants are running at about 60 per cent capacity now,” said Michel Binette, spokesperson for lobby group, Regroupement pour l’équité dans l’industrie cimentière québécoise. He’s also vice-president of the Canadian Cement Association.

Binette said while the group is concerned that the proposed McInnis Cement plant will bring another 2.2 million tonnes of capacity on stream and could drive down prices, it is more upset at the $250 million loan guarantee from the Quebec government under the former Parti Quebecois regime.

Another $100 million investment comes from the provincial economic development ministry and another $100 million from Caisse de depot’s pension fund.

While it is projected to create 2,300 construction jobs and 200 or more operating jobs, there’s concern the government has unfairly tilted the playing field.

Historically, said Binette, 70 per cent of Quebec’s cement production has been for the domestic market with the rest going to export to the United States, mostly to New England, Vermont and abutting provinces.

“We’re not against competition, it’s the subsidy,” he said.

The group is continuing to lobby the new Liberal government which is seeking a way to slash their $3.7 billion operating deficit.

For its part McInnis president Christian Gagnon says the roar of opposition is misplaced and that the venture, for the most part, is designed to go after an export market.

“We have said all along that our plant is not built for the province of Quebec market,” said Gagnon.

“We are building a coastal plant, one of a very few in Eastern Canada and the U.S. with a deep water port. By itself, no one would be crazy enough to build a plant at a size that the local market couldn’t absorb.”

It’s the export potential and the opportunity to load 60,000 tonnes of cement into a freighter bound for far flung markets, which is the real value of the location and the plant, he said.

The plant will also be among the most technologically advanced, with C02 capture going to an algae process which generates lipids.

This in turn can be processed into biofuels.

As to the merger of Holcim and Lafarge, Gagnon isn’t sweating.

“We don’t see how that merger will affect us,” he said.

“Whether they’re together or alone, they’re competition anyway.”

The change in provincial government does not phase him either.

“There may be some delays but these are not grants. These are investments not grants, that is one of the misstatements about this project.”

“(It) depends what we call local, something like 60 per cent will be international and 40 per cent Canadian but Atlantic Canada is in proximity with that deep water load and we can go far,” he said.

In past interviews Gagnon noted that up to 95 per cent of the cement will be exported beyond Quebec.

“This is a game changer because this model doesn’t exist in Canada. If you also look at the economic recovery in the U.S. — it is coming.”

With the lower dollar and resurging demand in the U.S., he is confident the plan will make sense, more so because Quebec has an abundance of lower cost hydro on tap.

The next development the industry is watching for is which of Holcim and Lafarge’s assets will be sold off either to trim overlap or to satisfy regulators who fear an overly large player could tilt the market.

The industry is also undergoing a major shift with Cemex trading its German assets to Holcim in a deal for Holcim’s Spanish business.

Paris-based Lafarge has the global capacity to generate 225 million tonnes annually from its 166 plants and is the largest player.

Number two is Holcim with 149 plants with a 217 million tonne capacity.

Five of the other top 10 makers are Chinese with HeidelbergCement of Germany ranking fifth with a capacity of 118 million tonnes from 71 plants while Mexico’s Cemex is seventh with 96 million tonnes from 61 plants, according to Global Cement Magazine’s rankings.

In Canada, said Binette, the plants are generally in good condition and fairly modern.